Stock and housing markets are increasingly vulnerable to corrections, the European Central Bank (ECB) warns. According to many, the ECB itself is to blame for this, but not everyone thinks so. In an interview with BNR Nieuwsradio, Bas Jacobs talks about the cause of the current overheating of the economy.
‘We have been seeing a worldwide long-term decline in interest rates for quite some time now. The natural interest rate at which the economy is in equilibrium is still below 0. And since 2015, the central bank interest rate has also been at 0.’ According to Jacobs, however, this is something that is determined by structural factors that we have seen for decades. ‘That has to do with ageing, because in these societies people save more, but it also has to do with inequality, with technological developments, and there is a great need for risk-free investments at banks, pension funds and insurers. All these factors are pushing down interest rates.’
According to Jacobs, the ECB has only a very limited effect in this and is therefore not the main instigator. ‘This is a problem we have seen for 40 years,’ Jacobs says. ‘Perhaps the previous crisis of 2008 was the cause. We have a huge amount of savings that are looking for returns, in stock markets, in real estate markets. If interest rates get extremely low, you can afford a very expensive house. Where the difference is between a bubble, and a normal reaction that you expect when interest rates are very low, thus causing portfolio reshuffling because risk-free investing doesn't pay off, is not so easy to say.'
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The full item from BNR Nieuwsradio, 22 November 2021, can be found here (in Dutch).